Source: Wall Street Journal                              Date: 29 September, 2011

China and the U.S. Federal Reserve are distorting the price of base metals to the point that their values have very little meaning anymore.There used to be a time when inventories could drive the price of metals. If stocks rose to excess, then prices fell and vice-versa. However, low interest rates have made it cheap to buy up large stocks of base metals for when construction picks up again. Analysts estimate the majority of exchange stocks of aluminum, for example, are tied up in financial deals like this. Thus, only a small portion of the approximately seven million metric tons is available to meet demand. This kind of hoarding will drive up prices.As for China, its construction projects have been a magnet for copper, aluminum, lead, nickel, and zinc. China's consumption has risen from 23 percent in 2005 to 42 percent today. However, it is unclear where these supplies are coming from. Although China's copper imports fell 36 percent in the first seven months of 2011, copper prices held firm. This is leading many to believe China is either recycling or drawing from unreported reserves. Local Chinese commodity merchants have also used metal as collateral for loans, boosting imports, but keeping demand at a standstill.